Rupee Slumps against Dollar

Indian Rupee against dollar faced a new crash to stand at Rs. 74.3935 in an intraday trade before staging a mild recovery to close at an all-time low of Rs. 74.3935.  The reasons attributed for the fall is

1. Deepening concern over India’s current account deficit
2. General outflow of funds
3. Continued pressure from Reserve Bank of India’s unexpected decision of keeping the repo rate unchanged.

Repercussions:

• The fall in the Indian Rupee value against dollar has hurt the minority of Indian firms that have not hedged their overseas borrowings.
• The unhedged Indian firms that swapped overseas debt into the local currency and that do not have foreign currency revenues face sharply higher repayment costs and the plight of such borrowers stands out after many aristocrats boosted hedges in recent years.
• Almost 75% of external commercial borrowings of Indian companies are now hedged.
• During the period when the local currency was stronger, Indian companies resorted to borrow from abroad in the past few years. The loss of over 13% in the rupee value in the recent days has made it the worst performer among major Asian Currencies, within a selloff in the emerging-market assets.
• Hedging is not done by many companies due to the high cost involved in covering exchange risk or a normal hedge.